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A clearer view into the second wave of US petchem projects

The visibility into the second leg of US petrochemical expansions is getting clearer. While many projects were shelved or in doubt amid the crude oil price decline in 2014-2015, the recent relative stability in oil coupled with a renewed sense of optimism on long-term global demand growth is spurring a new round of project announcements and activity.

While US crackers predominantly use natural gas liquids (NGLs) – primarily ethane and propane – as feedstock, product prices track crude oil which is the main feedstock for much of the rest of the world’s ethylene and derivatives production. Thus a robust oil price is beneficial to US producers who use cheap NGLs as feedstock.

And of course, companies must believe there will still be plenty of ethane feedstock to go around to make these billion-dollar bets.

Total is the latest entry in the new US cracker tally, announcing a planned joint venture with Borealis and NOVA Chemicals to build a 1m tonne/year cracker in Port Arthur, Texas, and a new 625,000 tonne/year polyethylene (PE) plant in nearby Bayport, Texas using Borealis’ Borstar technology.

The parties plan to make a final investment decision (FID) on the project by the end of 2017 with start-up targeted for the end of 2020.

The companies made the announcement during the recent International Petrochemical Conference (IPC) in San Antonio, Texas, hosted by the American Fuel & Petrochemical Manufacturers (AFPM).

Also during the meeting, Dow announced the mechanical completion of its 1.5m tonne/year cracker in Freeport, Texas, which comes with 400,000 tonnes/year of Dow’s ELITE polyethylene (PE), 350,000 tonnes/year of low density PE (LDPE), 320,000 tonnes/year of elastomers, and 200,000 tonnes/year of ethylene propylene diene monomer (EPDM). Start-up is slated for mid-2017.

Plus, Shell announced that it will start construction of its 1.5m tonne/year cracker in Monaca, Pennsylvania in late 2017 – moving up the timetable from planned groundbreaking some time in 2018.

The cracker, with two high density PE (HDPE)/linear low density PE (LLDPE) units of 550,000 tonnes/year each, and one HDPE unit of 500,000 tonnes/year, is slated to start up in the early 2020s.

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And ExxonMobil Chemical president Neil Chapman said the company is working with SABIC to select a site this year for their planned 1.8m tonne/year cracker, which will come with downstream PE (two units) and monoethylene glycol (MEG) capacities.

ExxonMobil’s existing 1.5m tonne/year cracker project with two LLDPE units of 650,000 tonnes/year each is expected to start up by the end of 2017.

While Total/Borealis/NOVA and ExxonMobil/SABIC have yet to make an FID, confidence is high they will proceed. These projects, along with Shell’s, would be the cornerstones of the second wave.

And let’s not forget about LyondellBasell. While the company is not building a new cracker, it is ramping up its recent ethylene capacity expansion at Corpus Christi, Texas, and about to break ground on a new 500,000 tonne/year HDPE plant in LaPorte, Texas, scheduled to start up in mid-2019.

At LyondellBasell’s investor day in early April, CEO Bob Patel said the company is evaluating expansion plans for ethylene, PE, propylene and polypropylene (PP) in the US, as well as potential acquisitions.

And the second wave of US petrochemical projects may not just be ethylene-based.

LyondellBasell in Q3 2017 will make an FID on its huge propylene oxide/tertiary butyl alcohol (PO/TBA) project for start-up in 2021. The $2.0-2.5bn project would include 450,000 tonnes/year of PO and 900,000 tonnes/year of TBA.

And Chevron Phillips Chemical, which is also planning to bring on a new 1.5m tonne/year cracker in Cedar Bayou, Texas by the end of 2017, is now mulling an aromatics project in the US.

Chevron Phillips Chemical has a proprietary process, Aromax, for the on-purpose production of benzene from light liquids which it uses in Saudi Arabia in a joint venture facility.

In the meantime, with all the new North American PE capacity starting up in 2017 and 2018, margins could come under pressure.

NOVA Chemicals started up its 450,000 tonne/year LLDPE plant in Joffre, Alberta, Canada in December 2016 and it is on the verge of hitting full operating rates, said Naushad Jamani, NOVA’s senior vice president, Olefins & Feedstock, at the IPC.

“We believe that polyethylene pricing could have another leg down in H2 2017 into 2018 as new capacity enters the market,” said John Roberts, chemicals equity analyst at UBS.

“Three world scale ethylene plants, with associated derivatives, are starting up in the US over the next year. Polyethylene margins over ethylene have averaged around 17 cents/lb over the past 2 years, which is well above the 10-year average of around 7 cents/lb,” he added.

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In addition to the new PE units downstream from the three crackers – Dow, ExxonMobil and Chevron Phillips Chemical – INEOS and Sasol are on track to start up their joint venture 470,000 tonne/year HDPE project in LaPorte, Texas in Q4 2017.

The total expected tally in additional US PE capacity for 2017 is 3.5m tonnes/year, and there’s more on the way. If other projects move forward as planned, through 2019 we’re looking at a cumulative additional 6.1m tonnes/year versus 2016. Through 2022, the tally balloons to 10.7m tonnes/year, according to an ICIS analysis.